A new report from blockchain analysis firm Chainalysis has revealed a significant surge in cryptocurrency money laundering, with nearly $100 billion in funds sent from known illicit wallets to conversion services since 2019.
The peak of this activity occurred in 2022, when a staggering $30 billion was identified as part of money laundering operations.
The report highlights that the 2022 spike was largely attributable to transactions involving sanctioned services, with particular emphasis on the Russian exchange Garantex.
This finding underscores the growing concern about the role of certain jurisdictions and entities in facilitating large-scale money laundering through cryptocurrency channels.
Previous research by Chainalysis found that a significant portion of cryptocurrency transactions involving Garantex were linked to illicit activities or high-risk services between 2019 and 2021.
Specifically, approximately one-third of the funds received by Garantex during the three-year period, amounting to more than $645 million in cryptocurrency, originated from addresses associated with criminal activities or were processed through services known for their minimal know-your-customer (KYC) requirements, such as mixers and certain exchanges.
This total encompassed various illicit sources, including over $50 million from fraudulent schemes, more than $60 million from darknet marketplaces, and in excess of $10 million from ransomware attacks.
Crypto-native money laundering
Chainalysis defines crypto-native money laundering as the process of moving funds from known illicit wallets to conversion services, which include centralised exchanges, DeFi services, gambling sites, mixers, and bridges. The firm’s ability to track these transactions with a high degree of accuracy is due to the inherent transparency of blockchain technology.
The report outlines the complexity of crypto-native money laundering techniques, which often involve the use of mixers, cross-chain bridges, and multiple intermediary wallets to obscure the origin and movement of funds.
In 2023, the number of intermediary wallets involved in moving illicit funds reached its highest point, suggesting an increase in the sophistication of laundering operations.
Notably, the use of stablecoins in money laundering operations has been on the rise, mirroring the overall increase in stablecoin adoption across the cryptocurrency ecosystem.
This trend presents both challenges and opportunities for law enforcement, as stablecoin issuers have the ability to freeze funds under certain circumstances.
The report also touches on the resurgence of cryptocurrency mixers in 2024, with services like WasabiWallet, JoinMarket, and Tornado Cash showing significant growth. Particularly noteworthy is the continued high growth of Tornado Cash, despite being sanctioned by the US Treasury Department’s Office of Foreign Asset Control (OFAC) in 2022.
While the report acknowledged that not all transactions through mixers or involving privacy coins are tied to illicit activities, it emphasised the need for increased vigilance and sophisticated analysis tools to combat the evolving landscape of cryptocurrency-based money laundering.
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